Derivatives competition plan may be scrapped by EU lawmakers

May 23 (Bloomberg) -- Deutsche Boerse AG may win a reprieve from draft European Union proposals to force exchanges to open up their derivatives clearing services to competition.

Some members of the European Parliament are seeking to scrap part of the proposals by Michel Barnier, the bloc’s financial services chief, amid fears they would threaten market stability, according to a document obtained by Bloomberg news.

The legislators are concerned that Barnier’s plans to boost competition will “fragment liquidity in trading platforms,” which “played a vital role in promoting stability during the financial crisis,” according to the document that lists proposed amendments to Barnier’s draft law.

EU antitrust officials vetoed merger plans by Deutsche Boerse and NYSE Euronext in February after concluding that the combination could threaten competition for trading in some derivatives. Barnier urged Joaquin Almunia, the EU’s antitrust chief, to take the competition-boosting effect of the draft law into account when deciding whether the merger should be permitted.

The move by the lawmakers “underpins” Deutsche Boerse’s position that open access to exchanges’ derivatives trade feeds “will endanger market integrity and lead to increased systemic risk,” Stefan Mai, Head of Market Policy and European Public Affairs at the Frankfurt-based exchange, said in an e-mail.

Competition Barriers

Barnier’s plan would require exchanges to share data on derivatives trades with rival clearinghouses, so allowing them to compete for business. The commissioner has said the measure is needed to tackle barriers to competition and so reduce costs for investors.

Some lawmakers from the parliament’s Christian Democrat, Socialist and Liberal groups are warning instead that the measure may threaten financial stability, by weakening clearinghouses and making them less able to cope with a large bank failure, according to the document.

“It would be a pity and yet another example of short- sightedness in policy making if the EU opts to row back on measures to improve competitiveness,” Richard Reid, research director for the International Centre for Financial Regulation in London, said in an e-mail. “Ultimately for end users, well regulated, transparent and open markets are better for choice and costs.”

Broader Overhaul

Barnier’s plans are part of a broader overhaul of the bloc’s financial market rules, known as Mifid, published last year. The draft law also includes curbs on high-frequency trading and a crackdown on so-called dark pools, private venues that don’t display prices in advance.

Clearinghouses such as LCH.Clearnet Group Ltd. and Deutsche Boerse’s Eurex Clearing operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the threat from a trader’s default.

The parliament’s economic and monetary affairs committee is scheduled to vote on its opinion on the draft law on July 9, according to the assembly’s website. The legislation must be approved by the parliament and by the EU’s national governments before it can come into effect.

Governments clashed last year over whether to include similar provisions to bolster competition in a separate Barnier proposal to regulate trading in over-the-counter derivatives.

The U.K. gave up demands for the data sharing provisions to be imposed for exchange-traded derivatives in return for a promise from Barnier that the measures would be included in the Mifid proposals.

Bloomberg News

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